Years ago, I found myself sitting in law school in Moot Court wearing an oversized itchy blue suit. It was a horrible experience. In a desperate attempt to avoid anything like that in the future I enrolled in a tax course. I loved it. I signed up for another. Before I knew it, in addition to my JD, I had a LL.M Taxation. I needed only to don my cape…. taxgirl® was born. Today, I live and work in Philadelphia, PA, one of the best cities in the world (I can't even complain about the sports teams these days). I landed in the City of Brotherly Love by way of Temple University School of Law. While at law school, I interned at the estates attorney division of the IRS. At IRS, I participated in the review and audit of federal estate tax returns. I even took the lead on a successful audit. At audit, opposing counsel read my report, looked at his file and said, “Gentlemen, she’s exactly right.” I nearly fainted. It was a short jump from there to practicing, teaching, writing and breathing tax.

Waffle House Waitress Wins Big in the Lottery, Loses at Tax Court

Growing up in North Carolina, I’ve seen my share of the inside of a Waffle House or two. In fact, my college roommate and I even had a favorite song on the Waffle House jukebox:

I’m not kidding.

But alas, as much as I frequented the Waffle House, I was never the kind of customer that made headlines. I wasn’t like Mr. Seward.

Edward Seward was a regular customer at the Grand Bay, Alabama, Waffle House. From time to time, he would pop over to Florida and buy lottery tickets which he would share with family and friends and yes, employees at the Waffle House.

On March 6, 1999, the day of the Florida lottery drawing, three Waffle House employees opened envelopes from Mr. Seward containing lottery tickets: none of the three held a winning ticket. The next day, two more employees opened their envelopes and lo and behold, Tonda Lynn Dickerson’s envelope held a winning ticket worth $10 million. There had been two such tickets worth a total $20 million: Tonda Lynn’s half was valued at $10 million over 30 years or $5 million as a lump sum.

The employees at the Waffle House were ecstatic for Tonda Lynn and for themselves. After all, they were such a tight bunch that they had agreed that if any of them were to ever hit the jackpot, they would split the proceeds – only that wasn’t exactly Tonda Lynn’s recollection. She refused to hand over any of her winnings, taking kind of a “finders keepers” approach. Her (now former) co-workers were furious and they sued, alleging that there had always been an agreement to split any winnings among them.

The court found that there had been an agreement to split the winnings; it was an oral contract. But – and it’s a big but – unfortunately, Alabama law (Ala.Code 1975, § 8-1-150) states that contracts related to gambling, which is illegal in Alabama, aren’t enforceable. So, Tonda Lynn was allowed to keep the whole thing (Dickerson v. Deno, 770 So.2d 63 (Ala.2000)).

As you can imagine, this didn’t make Tonda Lynn very popular. And it especially didn’t sit well with Mr. Seward, who was not only angry that Tonda Lynn didn’t share with her co-workers, but also that he didn’t get – and I’m not making this up – the pick-up truck that he claimed was always promised to him if any of the employees won the lottery. So he sued.

Seward’s arguments centered on the idea that Tonda Lynn had fraudulently misrepresented herself to him by agreeing to accept the ticket on the condition that if she won, she’d share with her co-workers. Seward lost at summary judgment which means, basically, he didn’t have enough of a case to make it to court. Seward appealed all the way to the Supreme Court of Alabama and he lost again (Seward, Jr. v. Dickerson et al, 1011359).

But Tonda Lynn’s legal woes didn’t stop there… While all of this wrangling was going on, she decided to do a little tax planning. Together with members of her family, she formed an S corporation (the cleverly titled 9 Mill) in Florida to hold her lottery winnings. This kind of thing goes on all of the time with respect to high net worth families: the entity protects the assets from potential creditors, allows for administration and consolidation of assets and makes gifting easy. And that’s what it looked like when Tonda Lynn set this up: she retained 49% of the stock and her parents and siblings split the remaining 51% of the stock.

Toye Sue Washington, an attorney with the Estates Division of the IRS, took a peek at 9Mill and slapped Tonda Lynn with a bill for unpaid federal gift tax in the amount of $771,570. Toye Sue alleged that Tonda Lynn made a gift in the amount of $2,412,388 when she transferred shares of 9 Mill to her family. That amount represented 51% of the present value of the lottery winnings.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

I saw this story today on ID network and I was floored. I cannot believe anyone would be this selfish. She didn’t even do anything for Mr. Seward who bought the ticket for her! Wow! I also understand she went back to work at another Waffle House. I guess $10 million doesn’t go as far as she thought or was she looking for another person to buy her a lotto ticket? I think the money couldn’t buy friends; why else would someone go back to being a waitress after winning $10 million? I think she needs a lesson in graditude and simple kindess from Oprah Winfrey who says she gets great satisfaction from giving to and doing for others. Even Donald Trump gave a tremendous gift to a couple who gave him a ride when his limo broke down on a highway. He thanked them by surprising them with the deed to their house which he paid off! And they were strangers! I am glad she at least provided for her family however I found it hysterical that she tried to use the same legal argument that won her case back in 2000 against the IRS in 2012. I guess money doesn’t by friends, kindness or brains. As always- “karma is a _itch!!”

People in general don’t know the law when it comes to federal taxation. Federal taxes or any other government taxes are voluntary. Gasoline when purchased has the federal tax already added in the purchase and if you want the gasoline, you volunteer to pay the tax in the purchase. No one twists your arm to buy the gasoline. Federal income tax is also voluntary but only if you are engaged in a trade or business with the United States or you hold a federal occupation. All others who pay federal income taxes (non-federal persons) commit perjury and allow the collectors of the tax commit extortion and conversion of funds. The Internal Revenue Code applies to federal entities only and therefore cannot apply to any private sector citizen not engaged in a trade or business with the United States or holding a federal occupation. Tax Court is court designed for Federal persons only and the private sector has no business there and will lose every time. The lotteries being operated in the USA are unlawfully requiring winners to sign Federal tax forms which allow the lottery to withhold Federal income tax. Not one of these lotteries are operated by the Federal Government where the Government has no jurisdiction. So why do these lotteries tell you that the IRS requires Federal income tax to be withheld? Simply because the lotteries FEAR the IRS and will adhere to their instructions which is nothing less than hearsay. You must be made liable for the tax and there is no way it can happen because lottery prizes are not wages that you earn and can only be subject to tax if a federal employer has a lottery offered to federal employees.